Law Article: Risk of double taxation under new BIA regulation

While the proposed regulations seek to make improvements and clarifications benefiting Indian landowners and ROW applicants and grantees, they also raise significant tribal-state taxation issues and tribal-state applicable law issues. We explore these issues below.

The proposed regulations, which would be codified at 25 C.F.R. Part 169, leave unchanged the ability of Indian tribes and individual Indian landowners to demand above "market value" compensation and to set the term for new and renewed ROWs. Apart from these rules, 25 U.S.C. § 357 authorizes condemnation of ROWs on allotments owned by individual Indians, but not tribal land, in federal court. The proposed rule does not affect ROWs acquired under the Federal Power Act.

Proposed rule 169.009 states, "Subject only to applicable Federal law," state and local governments may not tax permanent improvements in a ROW, non-member activities conducted under a ROW grant, or non-member possessory interests in a ROW. The proposed rule adds that each of these interests or activities "may be subject to taxation by the Indian tribe with jurisdiction," in addition to compensation paid for the ROW itself. Many federal court decisions have upheld state taxes on non-member business activities and possessory interests on Indian reservations. The BIA’s proposed rule provides no guidance as to when or under what circumstances state taxes would not be applicable. Absent clear guidance, this creates ambiguity that may lead state and local governments as well as Indian tribes to demand that their respective taxes be paid, creating double taxation and tax dispute risks for ROW holders.